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NMWM08360 | Working time: output work: identifying time treated as worked using rated output work (“fair” piece rate)

From HM Revenue & Customs · National Minimum Wage Manual

Relevant legislation

The legislation that applies to this page is as follows:

  • National Minimum Wage Regulations 2015, regulations 42 & 43

General

For a worker performing output work, the time spent working in a pay reference period may be covered by a “fair” piece rate (NMWM03130) which will be based on an average hourly output rate as calculated by the employer (NMWM03150).

It is possible using the information contained within the required notice (NMWM07070) to identify the time treated as worked for rated output work purposes and for checking the “fair” piece rate.

Example of determining time treated as worked for rated output work

An employer reports that:

  • the average hourly output rate is 10 items per hour, and

  • the worker is paid £0.76 per item output.

The worker is paid £399 for 525 items processed in a pay reference period.

The indicative hours worked in respect of that output can be identified by dividing the number of items processed by the average time to process them:

Amount of output 525 = 52.5 hours
Average hourly output rate 10

To determine the time treated as worked for National Minimum Wage purposes in the pay reference period, the indicative hours worked are increased by 120%;

  • 52.5 hours increased by 120% = 63 hours

The worker is treated as working 63 hours in the pay reference period regardless of how long it actually takes to produce the output. In this example, the employer had calculated a “fair” piece rate based on the main rate of £6.31, as follows:

£6.31 x 1.2 = £0.757 per item
10

Further information about calculating “fair” piece rates can be found at NMWM03140.

When considering rated output work where the worker only produces output covered by a “fair” piece rate, a NMW Officer may choose to simply check that the employer is paying at least the “fair” piece rate instead of calculating the time treated as worked in each pay reference period. Paying a valid “fair” piece rate will always ensure that a worker is paid at the National Minimum Wage. However, where a “fair” piece rate does not apply, is not valid or not being paid, the worker must be paid at least National Minimum Wage for the time spent working (NMWM08370).